• Is it ideal to rent or to buy a house in the UAE

    Most people flock to the cities in search of a better job opportunity or to start their own business. What most of them don’t realise is that it is 20 to 40% cheaper to buy a home instead of renting it. This of course depends on where you are living, how long you intend on staying in the city and the differences in the property prices and the rent that is asked for in the area.

    How can you decide if you should buy or rent?

    There could be plenty of reasons why you should rent out as you are unsure how long you intend to stay in the city. But, then having a home to call your own is not such a bad idea. You are increasing your asset value as well. You can use the following mathematical calculation to help you decide if you should be renting or buying.

    An average one bedroom apartment is priced at Dh700,000 and the rent for the same is an average Dh65,000 per annum. The price to rent ratio is 10.76. The price to rent ratio will vary anywhere between 10.76 to 14.4.

    The threshold set universally is as follows:

    • If the price to rent ratio is 1 to 15, then it is much better to buy and not rent.
    • If the price to rent ratio is 16 to 20, then it is much better to rent and not buy.
    • If the price to rent ratio is 21 and above, then it is much better to rent and not buy.

    Since the price to rent ratio in the UAE is 10.76 to 14.4, it is much wiser to buy and not rent. The cost of owning a property is cheaper than renting it. You will have to pay a 25% down payment fee and the transfer fee is only 4% of the property value.

    Factors to consider when you are deciding if you should buy or rent

    Following are the factors you must consider when you are deciding if you should buy or rent:

    • Length of your stay in the UAE: This is the most important factor, if you are unsure of how long you are going to stay, you mustn’t buy a home. When you are buying a home you are also making an investment and you must be okay with the fluctuating prices. If you do intend to stay in the UAE for a long period, then the cost of ownership will be low. Even if you do have to go out of the country for a while, you can just rent out the home.
    • Affordability: The lenders will alter the interest rates based on the market condition and this will also impact your monthly payments. If the economy improves, buying a home will be less affordable. You can get in touch with a mortgage broker and identify your needs and affordability.
    • Transaction cost: When you are buying a home with a home loan, you will have to pay for down payments and upfront costs. The combined cost of buying and selling the home will be 6% of the value of your home. Though the transaction cost will be offset by the price appreciation and rent, there is still the payment upfront, processing fee of loan, insurance, booking costs, and legal costs.
    • Maintenance cost: Maintaining a home is not an easy task. You will be charged an annual facility management fee. This fee keeps fluctuating and you must have sufficient funds to meet the extra expenses.
    • Law: Sharia law applies on the home. If the homeowner dies, the property may bypass the dependant altogether.
    Also checkout the Top factors to consider while applying for a mortgage in UAE

    Where and how to buy a home?

    Home loans in the UAE are available at 4% per annum or less. The home prices are down by 15 to 20% since the transaction volumes have halved. The rent has also fallen by 3%.

    You can buy a property depending on your budget and in the area that you prefer. You can get a real estate agent to show you homes and you can also do your research and get an idea of the locality that you are interested in. There are plenty of websites that give you a fair idea of how much the prices of the property are in the UAE.

    Buying a home is easier as there are many lenders who offer home loans as long as you are eligible. The down payment required is 20% of the property value. You can shop around for the loan and choose the best from the various options that you have. You must keep in mind that you will also have to pay for registration, real estate agent charge, building maintenance, insurance premium, etc. You must keep aside 35% of the total value of the house aside in cash before you take the first step to buying a home.

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